(Alliance News) - LXi REIT PLC on Wednesday confirmed that it is in talks with J Sainsbury PLC to buy 18 prime grocery stores, on a sale and leaseback basis, for around GBP500 million.
On Tuesday, Sky News reported that the real estate investment trust is in talks with Sainsbury's to buy a portfolio of prime retails sites for around GBP500 million on a sale and leaseback basis.
"A property industry source said on Tuesday evening that LXi was likely to seek to raise hundreds of millions of pounds in equity to fund the acquisition, with part of the consideration also including an unspecified amount of debt," Sky News said.
It added that a number of other parties are said to have expressed an interest in acquiring the portfolio.
On Wednesday, both LXi and Sainsbury's confirmed that they were in discussions.
LXi said that the stores, which are located in the south of England, represent a net initial yield of around 5.0% and will be let to Sainsbury's Supermarkets Ltd.
"The target portfolio benefits from several defensive characteristics including: strong trading performance, very low and sustainable indexed rents, long-term 'green' leases, low site coverage and modern buildings that provide omni-channel sales optionality," the investor said.
The company added that the stores will be funded through a mix of new equity and debt in-line with its existing borrowing policy.
LXi is currently in discussions with potential investors regarding an equity raise, it noted. The company expects the raise to have an issue price set at a premium to its estimated net asset value per share as at July 31 of around 142 pence, reduced by the interim dividend of 1.575p that is expected to be declared shortly.
No binding terms have been met with Sainsbury, and therefore there can be no certainty that the acquisition, or equity raise, will take place, LXi added.
Also on Wednesday, Sainsbury said it has agreed on an acquisition price for 21 stores in the Highbury & Dragon investment vehicles, which the company served notice to purchase last year and earlier this year.
Sainsbury's has held a 49% interest in Highbury & Dragon since it was created in 2000. The vehicles comprise the freeholds of 26 Sainsbury's supermarkets which are leased to Sainsbury's. The remaining 51% is owned by a joint venture between Supermarket Income REIT PLC and British Airways Pension Trustees Ltd.
"This agreement marks a significant step in the process of bringing the structure to an end," Sainsbury's said.
The company added that if the LXi transaction goes ahead, the cash received will be used to help the fund the Highbury & Dragon stores.
It explained that these transactions will have no impact on financial guidance, however there would be a cash timing effect as the sales proceeds of the LXi transaction will be expected in this financial year but the Highbury and Dragon purchases are expected next financial year.
It expects the acquisitions to be complete in the first half of the financial year to March 2024.
Shares in LXi were up 1.2% to 140.00 pence each in London on Wednesday morning.
https://news.sky.com/story/sainsburys-in-talks-to-offload-500m-store-portfolio-to-lxi-reit-12702225
By Sophie Rose; sophierose@alliancenews.com
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